In today’s low inventory housing market… with buyers bidding over list to get a deal… it is more important than ever to focus on UNLISTED motivated sellers to find your deals. (Read more in How to Find and Close Motivated Sellers). This may seem like a daunting task… reaching out to someone who has not listed their home for sale… who is in foreclosure… and ask them to sell to you directly, but it doesn’t have to be. There is a right way to prospecting owners in default. Here’s how…
What does it take to successfully prospect an owner in default?
To begin, let’s state the obvious. It is not easy to talk to a stranger, and for many of you, the fear you feel before you make that call or door knock an owner in default, may stop you in your tracks. Do not let it! What you will find, is that with the right mindset and approach, owners in default will thank you for your efforts and be extremely grateful for your help and support.
If you approach the owner with the ”serve first” philosophy (in other words, you are not only there to buy their house, you are looking to see how you can HELP them out of this difficult situation) your conversation will go a lot easier… than if you approach them with “hi, I know you’re in foreclosure and wanted to see if you would sell me your house?” If the latter is your approach, you are done. You will never get off base one with the owner.
Keep in mind that this a difficult time for the owner facing foreclosure. They have financial burdens, high emotions and stress, with the noose of their mortgage payments strangling them. Selling their home is one solution, but not their only one. If you are honest with what is best for them (not just best for you), you will earn the respect and confidence of your owners. And if and when the time is right to sell, you will be the one they want to work with… as you have shown them you have their best interests in your heart… This is what will set you apart from every other investor out there.
There are two kinds of distressed owners in default – those with equity (loans are less than market value) and those without (short sales, loans are more than market value). You will approach them very similiarly at first, but their options and benefits of selling are different for each. So you must make sure you know where they stand, equity-wise, before you make your calls (or door knock).
In the case of short sales, the owners do not have any equity, so you will not be giving them cash at closing. However, many lenders (those who are part of the foreclosure settlement agreement) will give the owners anywhere between $5000-$30,000 moving allowance at close of escrow, with their approved short sale by December 2013 (it goes away after that). Plus there are other benefits like “forgiveness of debt” that will also go away at the end of this year. If someone is going to do a short sale, 2013 is the year to do it.
In the case of equity sales, these owners will be getting their foreclosure stopped, back payments will be made and cash at closing from their equity. In both cases, they will have a fresh start and avoid a foreclosure on their credit and be able to buy another home, using conventional financing in the next 3 years.
How do you approach the owner in default directly?
To begin, get the image if you “stealing” the owners’ house and equity to make a deal. I have long been called the White Knight Investor for a reason: I live and breathe the Golden Rule “Do unto others as you would have them do unto you.” When I can help a homeowner, no matter their outcome (keep the house or sell it) and they have their fresh start – that is success in my book!
Once we’ve stepped away from the negative ideals, we can focus on actually listening and reasoning with the homeowner, we will be able to find the right solutions to help them with their fresh start. But we must first understand their personal situation, what they’ve done so far, and what they haven’t done… before we offer any direction. Never assume you know what they should be doing, if you haven’t learned their history first. You must dig for the truth and then help them see what their next best next step is.
If you serve first, then if their best option is to keep their home (because they have the income to afford a modified payment plan) than that is what I will recommend. If they are unemployed or underemployed, and need to downsize to more affordable living, then selling is what I will recommend. Bottom line, we do what is best for the seller first, and always.
How to build confidence in your recommendation?
You cannot offer help to an owner in default, if you have not built trust first. You cannot build trust, if you are not confident in your own efforts. You cannot be confident in your efforts if you do not fully understand all the options of the owner in default (there are more than do a loan modification or sell your home) – and know the pros and cons of each option available to them.
Next, you must stay in the control of the conversation, asking open ended questions, to better understand their situation. You do not want to badger or intimidate the homeowner in your approach. You must be the “safe place” the owner can talk – without feeling like you are an adversary. You are on their team. You want to help them. The outcome is not important to you, that is critical! If they believe your only interest is to buy their home, you will NOT buy their house. I can promise you that!
The sellers are ready to move on. Now what do you do?
Once you understand the owner and their situation completely and have determined that selling is the right choice – they will then need to decide HOW and WHO will buy their home. This is the fun part – where all your hard work pays off. They are more likely to want to sell their home to you, the person who has listened well and offered help outside of buying their home – when no one else would. You will be their number one go to person. They will be ready to sell and ask you if you want to buy their home. I know this may sound crazy, but this is truly how it comes together!
Your next step is to go over the numbers, figure out the most you can pay for the house and then make them an offer that brings their loans current, gives them cash for a fresh start, and allows you room in your budget to fix up the house and sell it for a profit. This is the true win-win deal. It happens every day in the pre-foreclosure market. And as more owners see the equity in their home grows, the more owners you will be able to help.
We are at the beginning of the next big run in real estate. REOs are dropping, Short Sales are increasing (but not for long). With values going up we now have more owners with equity then I’ve seen since 2005. This is a welcome sight! But as this market is shifting, so is our approach in finding deals and working directly with the owners in default.
As much as your Realtor maybe saying “there are no deals” out there… they are wrong. They are just not seeing the opportunities we are seeing. Once you know how to hunt and qualify those unlisted, motivated sellers, you will never run out of deals!
Are you ready to talk to an owner in default?
I hope so! But if you are still a bit gun-shy, that is okay. We can help you. Successfully prospecting and negotiating with owners in default, who have not listed their home for sale, is absolutely my expertise. I’ve been doing and teaching this critical skill for close to 25 years now. I’ll be sharing my insight this Wednesday, so you can get to work right now in this hot market.
Join me to learn how do this the right way, in my next Strategy Session Webinar & Call “Find and Close Motivated Sellers. Stop Getting Sucked into the Wrong Deals. Start Qualifying and Closing the Right Deals Now.” Space is limited, so please register quickly and then mark your calendar for July 10th, 6pm Pacific (9pm Eastern) and join me!
See you then!